The Property Franchise Group PLC (TPFG) Earnings Call Transcript & Summary

Welcome to the Property Franchise Group full year 2022 results webinar. [Operator Instructions] This webinar is being recorded. I now hand over to Gareth Samples, CEO; and David Raggett, CFO. Gareth, over to you.

Thanks, Tamsin, and thanks for everybody's interest today. Great set of results to report, strong financial performance ahead of market expectations in the tile slide, and we're delighted with the way we navigated 2022. In terms of just to get an understanding for those of you not aware of who we are, we're the U.K.'s largest property franchise business. We operate at 9 brands, 3 of those being national and 6 of those being strong regional brands. Martin & Co is predominantly lettings and improving their results in sales. Hunters business we bought a couple of years ago, predominantly sales with a strong lettings business that's growing. And then our hybrid state agency business, EweMove that we acquired back in 2014 or 2015, they actually celebrated its 10th anniversary this year. We've then got 6 really strong regional brands, CJ Hole Parkers country properties, Ellis & Co., Whitegates and Mullucks. And that gives us significant scale. We have 570 businesses trading territories, including EweMove. EweMove, in its own right, has 189 territories operating, and that will break 200, I would hope in the next 6 months. We look after on behalf of landlords, 76,000 managed properties. And in 2022, we sold in excess of 24,000 properties, which would put us #2 in the estate agency market in terms of volume. What's our purpose and yes, this is really important to us is, to support our franchisees, helping them to become more profitable, more successful. And a big part of the transformation over the last 2 years -- 3 years has been about putting in place that leadership team that we'll talk about a little bit later, that really on a day-to-day basis supports the franchisees in looking at the opportunities that they have within their business and helping them execute on those. And our vision is to achieve an increasing U.K. market share of lettings, stay agency transactions and property-related financial services. A record year for the group, and we've said that every 6 months since we came out of lockdown. We've been on a really fast journey. And if you look at what the business looked like 5 years ago, it's what it looks like today, it's absolutely chalk and cheese and we're going to talk to you through some of those numbers -- or David is a little bit later. We've delivered on investment and growth objectives with strong financial performance, significantly increasing revenue and profit this year. Strong organic growth in lettings revenues. The market in lettings is on fire and the rent inflation is driving good levels of income into the franchise businesses. And that's underpinned by our quality of service and market strength with 76,000 properties under management, again, would be #2 in that marketplace. So we've got real scale across that business. Operating profit increased to 40%, which we were delighted about. And that's in the second year in a row to GBP 9.3 million. The integration of Hunters has been achieved ahead of target. I remember sitting on this call 2 years ago when we just bought the business and were cock-a-hoop and a lot of people said, well, it's okay buying a business, but now you've got to demonstrate that you can make it work, and I think we've done that. And we're now benefiting as an enlarged group with most of the synergies achieved. Big part I've touched on this already is continued investment into our highly experienced senior management team. I look back to when I joined the group back in February 2020, and it really was just me and David, we've now got what I consider as to be the best, most capable leadership team that on a day-to-day basis works with our franchisees. We've got an MD in each business. They have operations directors that look after about 40 branches each. And the relationship between franchisor and franchisee has never been closer. And we're working together to look at the opportunities and how locally we can secure that additional market share in both sales, lettings and laterally financial services. And that's been a big change in terms of the group. And we've returned to a net cash position. We took out a GBP 7.5 million term loan when we acquired Hunters and due to the strong performance of the group over the last 2 years, we've managed to repay that early and now sit in a cash positive position that, again, David will elaborate on a little bit later. So final part, we're delighted with the results we're going to present to you today. It's been a really successful year for the group, and we're happy to share those with you. I'll now pass you over to David, who will add some color to that.

Good afternoon, everyone. This is -- well, I mean, I've been 10 years in the business. And every year, I've been delighted and proud of the results we've reported. But this year, this year is just the vindication of something that we started 2.5 years ago to drive the business from where it was. And don't get me wrong, I was very proud of those of those results in 2018, 2019, even 2020, was a record year, but to drive us forward, put us into a wholly different position. And I think these results reflect that. So group revenue up 13% to GBP 27.2 million. On a like-for-like basis, looking at just those businesses we've owned throughout that was 8% growth management service fees, royalties, the lifeblood, the most important revenue stream to keep developing for us, up 8% to GBP 15.9 million at like-for-like, up 5%. If you were to just look at the 2 key component parts, lettings; lettings was up 12% year-on-year and sales up 2%. I mean, up 2% in a market that went back 15% in transactions. That's quite something. Adjusted EBITDA, a measure that I always include because it's close to reflecting what's happening in cash generation all the time, up 14% to GBP 11.8 million, almost 100% of that converted into cash from operations, which is why I tend to keep that measure there. Adjusted operating margin, strong again, up above my threshold of 40% that was set for the business when I started. Just there, 41%, that's perfect for us. Profit before tax, up 38% to GBP 8.8 million. Again, that's a hell of a growth in a year and operating profit, which lies behind that has gone up 40% this year. We're up 40% last year. So it's terrific. Net cash, as a result of all this cash generation, net cash has gone positive by GBP 1.7 million. That's the slightest paying out record dividends, investing in record amounts actually in our operating systems that our franchisees use. And gratefully, we've managed to repay the term loan that we had very early. So all of that done in a net cash position of GBP 1.7 million. And then dividends, well, we're generating all this cash follows that we're generating profits, we're generating the earnings. We've raised the dividend for the full year from 11.6p to 13p, so up 12%. Yes, there is some headroom in that because it's only [indiscernible] about 50% of what we've generated and could have paid out if we'd wish to. So that's done deliberately in years where there might be slightly slower growth. And you never know what's around the corner. I'd like to know that we can continue with our progressive dividend policy. And last, by no means, least, if I look at the adjusted earnings per share, fully diluted, well, that's up 6% to 28.4p. So where did all of that come from? Well let's have a look at revenue. I was pleased when the slide clicks on. Last year, just over 60% of our revenue came from management service fees or royalties this year just under -- the big change year-on-year has been financial services. We are making, as we stipulated or set out 2 years ago, a concerted effort to generate more income from financial services, both through in our franchise network and with our own business that we've bought Mortgage Genie. So we're on that journey. That's the big change year-on-year. And for those who are new to us, other represents the services that we supply to our franchisees, and we do that in 2 ways: 1, we have the master licenses for all the operating systems that they use, and we provide the frontline support and license them on those systems; And then in EweMove fully, and in Hunters partially, we manage the properties on the [indiscernible] through the franchisees. So that generates income stream for us as well. Management service fees, slight change. Lettings has improved a little bit over 2021. So I might have thought it would have improved further given the reduction in the sales market. But you can see from the fact that MSFs grew 2% year-on-year, that it wasn't going to change too much. Markets going to be slow again for sales transactions in 2023. So I think you can expect a bit of a drift out again and letting MSF to probably represent 57%, 58% of total MSF in 2023. Management service fees from financial services, currently at 1%. There's been a lot of work on that and Gareth will update on how that's progressing this year. Do I think it will be a large element overall? Slightly maybe, but I mean it might be 2%, it's not going to suddenly dramatically change. The 2 key streams are still going to be sales and lettings, with lettings being the majority at the end of the day. One last thing on performance in the year. I'd like to just keep us rooted in cash. These days with so many entries that go into accounts to follow the theory of how we have to account, sometimes can be difficult to see what's happening and cash is always a level or in this regard. So cash at the start of year is GBP 8.4 million. We generated GBP 9 million from net cash from operations, that's after paying tax and interest in our loans. We paid the bank loan, paid out dividends of $2.8 million and ended the year at GBP 7.6 million. Where were we in terms of net cash from operations? Almost the same year-on-year. That reflects slightly higher tax we've had to pay in 2022 over prior years, more interest on the loans, a little bit of working capital that had to go into the business as clear some arrangements for the franchisees. And then on a free cash flow basis, just slipped slightly because there's more shares in issue in '22 in the way we calculate this number than they were in '21 as a result of Hunters' acquisition. So just slipped down from 27p to 26p, but it's still healthy when we're only paying out a divvy of 13p. Now I'm going to take you on to the next part of this, which is a period of significant growth because 10 years ago, we'd come to market. We were a relatively small-cap business with what we were proud of as a very good profit record. We went through the first 5 years group of very good business from legal, in general. Then it's got into the hybrid market through EweMove and came to 2019 and started to look and say, what do we need to do next? As you know, Ian was leaving as Gareth joined, and we set out on a new strategy. And I wanted to just sort of show what that looked at before and after. And I could have just shown you 2020 and '21 and '22, but some of you might say, well, that's all very well. 2020, that wasn't the greatest year even it was a record year for us. There were plenty of issues around that year for all of us. So I've got a bit further out and just given us 5-year trends and if this clicks on, but this is what it looks like. So turnover, take us back to '18, '19, '20, GBP 11.2 million to GBP 11.5 million, now GBP 27.2 million. I mean, it's gone up 2.5x since 2020. MSF, up from a low of 9.4% to 15.9%, 69% growth. Profit before tax or just about doubled up from 4-and a bit, depending on which year you look at for 2020 to for 2021, now at GBP 8.8 million. And the real sort of matter that we measure this in the business all the time because this is how we performance measure and task our own businesses every day. Adjusted PBT, up from 5.3% in 2020 to 10.7% now. The underlying trend is always important to us. That tells us where the headline number, this number is going. Adjusted EBITDA, we've talked about before, so I'm going to skip on earnings per share, fully diluted 22.5p in 2022, up 69% on the 5 years. Adjusted fully diluted EPS. So where are things going to if we continue on as we are, what's underlying our business up to 28.4p, 114% growth. That should show that, that dividend per share that we've set now at 13p for 2022 has got some room to grow yet. And clearly, after the back of this, we've been generating a good amount of cash to keep investing. That's why net assets have gone up 137% over the 5 years. We've talked about net cash being in a positive position now. We're back on this working through our organic growth and just tweaking things in the business, so the return on capital employed will start to grow back towards 25%, and return on capital invested will start to grow back towards 30%. So all those metrics, I mean, as I said, we're proud of the results we created and generated in '18 and '19 and '20. But in all those metrics, the strategy of the last 2-and-a-bit years has really paid off. And now, it's a case of us looking again, looking at the market and deciding how we want to grow. And with that, I'm going to hand back to Gareth.

Thanks, David. And as David said, we've been on a really fast journey over the last 2.5 years in effect, double the size of the business, which is impressive. But we're sort of at that stage now where we need to push on again and look at where those next opportunities come. I think the thing to say the great news we've got is that leadership team and that organic growth coming from the team we've put in place, irrespective of whatever acquisition activity we can get involved in does give us the opportunity to continue to grow the profit line, not at the speed we have in the last 2.5 years, but still pretty reasonable. In terms of -- this should give you some clarity about what the market has done and how the lettings business had about 76,000 properties under management sort of protects us from the sort of bumps of the sales market. And you can see on the sales side, on the right-hand side, the peaks of 2021 with the stamp duty holidays the flatter market, albeit a reducing market in 2022, our estimates are that there were 1.5 million transactions in 2021 and probably about 1.25 million in 2022, but much flatter profile. And you'll see the graph of 2019, the 2019 profile is the one that we're following this year. We believe it's been a much more normalized market and probably going to deliver somewhere between 1 million and 1.1 million transactions in 2023. What you'll see on the left-hand side, however, is this rental inflation and just I've never known a lettings market as active as the one we've got today. Rent inflation is significant. And that's driving its way into the income that's generated to us as the franchisor. And that graph we put the start to sort of 2023 on there would be yet again above the blue line. So we're really confident that whatever reduction in the sales market, there may be in 2023, the lettings business will more than make up for that as it did in 2022. In terms of the market update, I talked about the residential sales gone from 1.5% to 1.2% to probably 1 to 1.1 and likely to align to 2019. Rental demand continues to outstrip supply. There is an increasing drive towards professionalism and we're really conscious of that. Our job, as the franchisor, is always to make sure that we educate our franchisees and we protect them. And Eric Walker, one of my MDs is the guy that takes the lead on that, and that's becoming more and more relevant moving forward. Net migration is still on the up, rising mortgage costs are a factor. However, not quite the factor we thought they were going to be back in October when the mini-budget took place. and the lack of new build continue to drive -- will continue to drive rental inflation. The government set a target of something like 300,000 housing units to scrap that target. They're delivering somewhere around 130,000, 140,000 houses a year, and that's just not enough. So we expect to see that rental inflation continue. And in 2022, the U.K. lettings market saw double-digit growth in terms of rent inflation, and we're seeing at least that this year. So showing those signs of stopping. So why are we well positioned? We are -- we've got a really robust business and we're a market leader with a proven franchise model and a growth track record. So although the group has grown significantly over the last 3 years, there's still a long way to go. There's still work to do that will improve those results still further. We're strongly cash generative, which puts us with a net cash position, which puts us in a really good position, I think, in 2023. We've got a very experienced senior management team adding value that I've talked about, and that's a massive change for us. We've got a clear, simple and focused growth strategy that's working. Core strength is to capitalize on the opportunities that arise out of disruption. So we said we're ready to push again. We'd love to think there's an opportunity that's right for us that we can secure this year or early part of next year, and we'll have the cash to do it. The acquisitions we have done are delivering well. So Hunters is integrated really nicely. Mortgage Genie, that we acquired in September 2021, again, is one performing very well in its own right, but also, we're learning an awful lot about financial services that we're then able to push across the group. So we've got high hopes that, that will continue to drive a good return for us. We have a high proportion of recurring income. So the cyclical sort of housing market fare sort it doesn't really affect us. The peaks and the troughs are much less for us being a franchisor. And as David's touched on a really strong focus on enhanced margin. So that 40% really is a sort of test for us that we don't allow our cost to get away from us, and we keep delivering that strong margin. We talked about the growth initiatives and just going through those. We launched these in September 2020 when we came out of lockdown and actually haven't seen any reason to change them because it is still work in progress. It is still growing on an annual basis. Lettings growth is a massive focus for us, and we would do that through assisted acquisitions and local organic growth. And again, this year, that's proving really successful. When I joined the group, our Martin & Co. business was suboptimal from a sales perspective, very strong from a lettings perspective, but there was definitely opportunity from a sales perspective and we're focused on that, and we'll talk about the results in the next slide. Increasing the penetration of financial services across the network, we are a 24,000 exchange unit business and 2 years ago, had no real financial services offering. So that was always a significant opportunity. It's probably taken longer and has been harder than we would have liked, but we are now beginning to make some real progress that I'll touch on later. EweMove recruitment, we set back as a real focus back in September 2020, and we wanted to double the size of the network over 2 years, and we've come really close to that. And that business is 10 years old as of 2 weeks ago, it was a 10-year celebration conference and is really adding value to the group. It's grown significantly over the last 3 years and now represents a good chunk of our profit and has the ability to really push forward. Acquisitions at a franchisor level, I've touched on, if there was a business there that fitted the group, we would undoubtedly consider it. And then digital marketing, we talked about that customer for life journey with the data that we hold, and I'll touch on the sort of progress we've made on the next slide. So lettings growth, 76,000 managed properties, up 2,000 on the year. Assisted acquisitions last year, we bought 1,890 units into the network, which will deliver GBP 2.1 million of revenue at franchisee level. And our aspiration issue is to try and deliver between 2.5 and 3.5 additional units, and that will be our [indiscernible] for the next 5 years. How will we do that? The fact that our footprint has extended significantly as a result of the Hunters' acquisition and the growth of EweMove means that we've now got more territories in the U.K. So before, if an acquisition opportunity came up, we could only buy it in 200 locations in the U.K. We've now got double the size, 400 locations. So by definition, we should be able to complete on more acquisitions as a result of our footprint and we'll really push that over the next 5 years. In terms of the sales activity, again, when I joined the group, Martin & Co. was suboptimal in the sales side of the business. They moved their market share forward last year. So although the market in the U.K. probably dropped back 15%, 16%, Martin & Co.'s market share moved forward. They did more exchanges last year than they did in 2021. So good progress being made there. Financial services, it's been a challenge. The uncertainty after the mini budget was a concern. But luckily, that's stabilized quite quickly and the mortgage rates now are -- you've got competitive rates around 4%, 4.5%. Our mortgage business has significantly improved in the last 6 months, and we're on a run rate currently to deliver about 3,000 mortgage units. Our target when we set out 2 years ago was to get to 6,000, and that's growing quite nicely. So although there's still a lot of work to do, we're pretty happy with the progress that we've made in the last 12 months on financial services. And Mortgage Genie has performed resiliently, but the biggest asset at Mortgage Genie, I think, is the knowledge that they provided us in terms of how do we make financial services a success across the group. And Matt Stevens, the MD there has been instrumental in looking at the opportunities we've got and how we go about securing those. EweMove recruitment of 44 new territories sold last year, second best year on record, 189 under contracts, sales rate of between 3 and 4 a month, which is pretty steady progress. The opportunity in EweMove is probably 1,200 territories. I don't think we'll ever get to 1,200 territories, but there's certainly optimism to think we could get to at least 400, and that would make EweMove, the largest single brand estate agency in the U.K. So a big focus on that over the next 5 years to drive that number past 200 and beyond. Acquisitions at a franchisor level, Hunters, Mortgage Genie integrated and performing well. And I think I look back 2 years ago, almost to the day, and we were cock-a-hoop about the acquisition that we've made with Hunters. And what a lot of people said, well, congratulations on that, but you've now got to demonstrate you can integrate it. And I think we've done that. I think we've delivered everything and more that we talked about 2 years ago, and that gives us real confidence in being able to take forward another acquisition, which is why we're keen to sort of investigate that this year. And then the big part for the group, which probably doesn't get the value it deserves. Being the largest franchisor in the U.K. means that we've got 600 businesses on a daily basis, collecting consumer data and storing those in CRM. So we've made a huge investment in 2022 to upgrade each business as CRM. So we started with Hunters. We're just about finished with EweMove. We will then move on to Martin & Co. So the whole group data will be in accessible CRMs. That then all feeds up to the mothership, let's call it, and we get the opportunity to communicate with that data. And to send appropriate communications to that data to try and drive leads back to the franchise business, okay? So we've got our CRM sorted, we've launched new websites across all of the business. We've got our e-mail service provider in the middle, and that's what the vehicle that will send the communications out. And our intention is to build this customer for life journey with multiple touch points, all aimed with a call to action to drive additional sales back to the business in terms of financial services, rent indemnity, conveyancing, lettings and sales. So we're partway through that, but it's a really exciting piece for the future. In addition, we're looking at some referral software, which I may have touched on before, where we have situations currently where somebody will go into Derby with a house to sell in, let's say, Bournemouth, be registered as a buyer in Derby, and Bournemouth will never get to hear about that customer with a house to sell. Our intention is to have this clever software in the middle that will alert Bournemouth office to the Derby buyer and the Bournemouth office will have a conversation with that seller in terms of marketing their property. So the data piece, don't underestimate that. We collect now significant amounts of data, all of which we intend to communicate to drive additional income into the business. Market -- our industry-leading executive team, loads of investment in this. Again, 2 years ago, none of these people were there or 2.5 years. We've got Hayley Hall, who looks after Martin & Co. Midlands and North. And in addition to, if you like a day job, she's also an acquisition specialist, she's probably been involved in more portfolio acquisitions on behalf of franchisees over the last 10 years than anyone else. So she's our real expert in the acquisition side of the business. Eric Walker runs Martin & Co. South in Scotland. And in addition to that takes the lead on compliance, GDPR and regulation across the business. which is absolutely needed. We've got Rob Smith, who looks after Hunters and Whitegates, and he's from a big corporate background, looking after multiple office locations and he's really experience in residential sales and financial services who's taking the lead on our financial services offering with Toby Phillips. Nick Neill, we've touched on, MD of EweMove, absolutely has driven that business from the day he's took over, celebrated his 10-year anniversary and he's growing that business into probably the most expensive -- sorry, the most successful hybrid estate agency offering in the U.K. with Glynis Frew, who was the ex-CEO of Hunters, who now takes a lead on training and development and regulation from an estate agencies perspective, ROPA is still on the cards and Glynis will lead the sort of help franchisees on ROPA. Toby Phillips supporting Rob Smith in terms of residential sales improvement and financial services. Adam Noonan, our new Commercial Director, who oversees marketing, IT and third-party suppliers and then Matt Stevens of Mortgage Genie, who I've talked about. So a significant team of people that have the ability to organically grow the business that we currently have. Outlook, we're pretty confident. We're confident that we're in a good position and can execute on our strategic plan. Quarter 1 has been ahead of management expectations both in terms of revenue and profitability. And we see no reason why that will fall in the remainder of the year. Experienced team continues to support the group franchisees with further growth expected in 2023. But our ultimate goal and the thing we've said consistently for 3 years, our ultimate goal remains to support our franchisees in order to help them become more successful. The relationships that we've built with franchisees over the last 2.5 years means that we now have a stronger relationship than ever before, and that gives me real confidence that we will be able to drive forward the results. So we remain confident in delivering growth in full year '23 and beyond. Thanks for listening. That's the presentation. Tamsin, over to you.

So we've got a few questions here. This time last year, you had 74,000 managed properties. You acquired nearly 2,000 and now have 76,000. How hard is it for your franchisees to find local organic growth?

Yes, really tricky. And there's a number of reasons for that. Firstly, there's not loads and loads of landlord properties that are vacant. So everything that you've got is rented. So I guess if you're a landlord, and you've got a tenant, you're not going to change agent. And then the new generation of buy-to-let landlords, there's not many coming in at the moment. So we've got a big piece that we're working on at the moment, which is how do we attract new landlords into the buy-to-let sector? And then, of course, you've got some landlords at the height of the market deciding to exit our -- So local growth is very, very difficult, which is why we're very focused on the acquisition program, buying small local portfolios. The good news is people -- agents didn't sell in 2020 because of COVID, the market then was very busy in 2021 and 2022. So the number of opportunities to buy small to medium-sized portfolios, locally, has been subdued. And we've already seen in the first sort of 3 months far more opportunities coming to market. But I think our growth will be very much focused on acquisitions of local portfolios rather than sort of organic growth because new landlords coming to us.

And with the acquisitions of Hunters and Mortgage Genie, are you concerned that you made the acquisitions at what might be considered at, or near, the top of the market? As you state in the results, sales activity is not where it was in '21 or '22 Q1 to Q3?

So I think from my perspective, Dave will have his view, we -- the timing was incredible. So we bought the business at just the right time to take advantage of that really strong market and that generated all the cash in 2021 and '22 that's enabled us to pay off our term loan probably ahead of schedule. And what we're going back to is a more normalized market. I think what we've done with both businesses is align them to the TPFG model, and that's driven out some upside. There was some -- clearly some synergies with the Hunters deal. So if you look at what Hunters' achieved in 2019, let's say, 2020 was obviously COVID, compared to what it's delivering now is significantly up on that result. And obviously, with a more normalized market, I think it will continue to go from strength to strength. I think the synergy is coupled with the increased focus on the lettings market and the financial services opportunity within Hunters gives room for real optimism over the next 2 or 3 years of that business, we'll continue to deliver enhanced profit.

And I see some of the growth opportunities referenced include conveyancing and block management. Is block management not quite a departure from the existing competencies?

So we've partnered -- so yes and no. So we've partnered with a company that that does block management on scale. So it's sort of a joint venture on block management for the lettings agents that want to do it. So we were pushed by a number of franchisees to allow them to get into that space. We then picked a partner that would -- from a compliance perspective, keep them safe, there was quite a compelling proposition. And we've had a number of franchisees that take our option up and are doing incredibly well on it, actually. I was talking to a franchisee down south last month and they won about 500 properties from a block management perspective. And block management is pretty low margin income, but what it does is open up the opportunities to understand all of the landlords in that block to be able to let those properties. So it's sort of a sprat to catch a mackerel but it's good data. It's good information that enables them to locally understand their lettings market a little bit better and give them opportunity to go out from a landlord perspective. Sorry, Tamsin, I didn't touch on conveyancing. Conveyancing is, if you like, quite a new income stream that we've launched, we've partnered with a couple of businesses and the early signs of that is actually hugely impressive. I think we've done 1,000 instructions in Q1 from a standing start. So that's moving much quicker than financial services did initially. And it's all about increasing the profitability of the transaction. So if you only charge a sales fee, that's maybe GBP 3,000 of income. If you can then do the mortgage, that's GBP 4,500 worth of income. If you can then do the conveyance that's another GBP 350 worth of income. So it's about maximizing the income out of that deal. And I wouldn't say we've been good at that historically, and we're much more focused on that today. And I think in a reducing transaction marketplace, what we've got is engagement from franchisees. I think last year and in 2021, anything you asked them to do extra, it just couldn't do, the bandwidth wasn't there. This year we're seeing signs immediately that they recognize that they need to earn money from other sources, and therefore, that's bringing the success I think.

And many of your EweMove franchisees don't last a course, it must be hard to grow a business from scratch. How do you help them get established and grow?

So the EweMove model is fairly cheap to get in, but also fairly cheap to get out. What we do in the first 6 months is we charge them low fees, so they get the momentum. There's also what Nick calls the lean green marketing machine, which is the marketing support that EweMove provide to each new franchisee. And then there's the local effort made by the franchisee. So there's 3 elements, I guess. No pressure on money for 6 months, marketing support from the center, but it's about the franchisee getting out there and having conversations with as many people on a daily basis they can to talk about their business. And I touched on it earlier, was at the NEC Metropole for their 10-year anniversary conference. And we talked about it. We talked about knocking on 50 doors and having 50 conversations every single day to make sure you are putting your business at the forefront of that local community. So -- and we've got operations managers that help franchisees get off to a cold start. But undoubtedly, there will be failures, that not every business will succeed. So our job is to try and reduce the number that don't make it. And I think we've done a really good job at that when you look at the growth we've seen in the last 2 years.

And your growth strategy relies on M&A. What are your priorities in M&A? Is it financial services? Is it increasing the lettings book? Is it sales? What should we expect? So firstly, I don't think it relies on mergers and acquisitions. I think we've got twofold -- 2 parts of growth. Now we've got the organic growth within the existing business supported by the team of people we put together that's showing real signs of growth. If you take the figures from last year and the growth that we saw in the old business, the TPFG business, pre the Hunters acquisition, that growth is significant year-on-year. The financial services opportunity within the business when I talk about having an aspiration to 6,000 exchange units on financial services, we'll be doing 24,000 exchanges. So 6,000, we could do a lot more. You then look at the conveyancing that can come into the business and again, that can move the dial. So I think we've got -- and then the lettings book acquisitions. So that's our existing business. So I think there's absolutely room to grow year-on-year with that side of the business. But we are highly acquisitive because of the cash generation that we have. So what would we consider? We would love another franchise business. We certainly consider a financial services business. We bought Mortgage Genie, and that's been a really good learning curve and a real asset to the group and that will just grow over the next 5 years. If we could buy another business like Mortgage Genie, I think we'd be interested in doing that. We don't want to dominate our results through financial services, but there's still significant room to grow in the financial services space. So I think a franchise model business we'd be very interested in, financial services business that would integrate and fit our current strategy and our Mortgage Genie business would also be attractive. David, I don't know whether you'd add to that?

I think the only other thing to add to it is occasionally, we see complementary businesses that we think are a relatively small scale that could sit alongside our franchise network and provide a meaningful service and will be worth considering. That's the other area, I guess, that we look at. And then everyone's strategy is open for change. And we noticed a few that are changing right now. We think does that give us an opportunity maybe there to buy an element of the business that would sit well with us. So that's where our acquisitions are going to come from. And having put ourselves in a position that we're in, you can imagine we'd be keen to have conversations with anybody. And so if you're out there, you're listening, give us a call.

And with the U.K. residential transactions down 20% to 25% year-to-date. How is your network performing on transactions alone?

Do you want me to take that, Gareth? I follow the stats a lot. I don't think there's quite that decline in the marketplace at this moment in time. There's a lot of headline talk about this, but not so much when you start to delve into the actual nitty-gritty of it. And we're not seeing that in our own businesses. So I presume others aren't as well. We've had a bit of adjustment in the first quarter. Prices have come down, just a smidgen not that much really. The amount of listing activity going on would suggest to us that we are heading towards that 2019 market that we thought we're heading towards and certainly, [indiscernible] putting their data out in the market also as well. So yes, there is some elements of drop-down that will be spread across our businesses. If Martin & Co. performs in the same way as it did in 2022, you'll see very little change. You won't see a reduction in transactions. That's for sure. The brands we owned for a long period of time, we'll see some modest contraction, maybe 8% or 9%. EweMove probably similar because it's got the growth phase of adding new franchisees on. Hunters is probably the most affected by the market because it's got a large element of its earnings coming from sales and B, it's an established player in that marketplace. So it's the most likely to follow the market. And then the other side, of course, is that -- while that's happening, lettings is growing over time. And in all those businesses, we are actively engaged in growing the lettings activity there. So it should play out -- no reason to say it shouldn't it should play out exactly like 2022. Lettings growth will outweigh any sales reduction. And if we do see 15% drop down in the market in 2023 for sales as we did in '22, well, a similar sort of result you would have thought wouldn't something like 8% like-for-like growth in revenue, 5% in MSF. And I think we come what may, there will be some growth there year-on-year. What do you think, Gareth?

Yes, I'd agree. The market is normalizing. I mean we're going back to a normal market. 2019 was the last normal market we saw. So definitely less transactions, but average house prices are higher, and therefore, average fee is higher. So there is not a direct comparison. So yes, we're really encouraged about how the market started this year, and it could have been a lot worse. You looked at October. And if you'd have asked me in October, November, I'm probably a little bit more cautious. But certainly, quarter 1 is started in line with where we'd hoped.

And I expect some franchisees generate a lot more MSF compared to others, the priority principle. Further, I expect some of the most successful franchisees are of an older demographic. To that end, if franchisees retire or want to exit that franchise, how does it work? Would that reduce the number of franchisees properties or would they be sold on to new existing franchisees? And to what extent you get involved in succession plans for high-performing franchisees?

I'll take the start at that, David. So really good question. So yes, our franchise community is an aging population. So do we help them? Absolutely. We have a franchise services team that deals with all franchise inquiries and all franchise resales, and we probably deal with, I don't know, 10 to 20 a year, ranging from, I think the largest one we sold in the last 18 months was GBP 1.5 million, GBP 1.6 million, down to the smaller ones at GBP 250,000, GBP 300,000. So we have a responsibility as the franchisor to ensure there's a steady flow of new generation franchisees coming into the business. A number of our existing franchisees will bring family in and pass it to family, which is probably, I don't know, 50-50 split with people that have an exit plan based on when they want to retire to the ones that want to pass on to family and take a bit more of a backseat in the business. But yes, we're absolutely. We've got a team centrally based in Bournemouth headed by Penny Sanders, who's been with us for, well, almost since day 1, I think she was employee #3, who absolutely understands franchise marketplace and is constantly interviewing potential franchisees in the future.

Do you want me to pick up on the spreader business? Because I think naturally, given the models that we run, they are going to be -- those franchisees are going to be generating different levels of turnover right the way across the piece. And if they're generating different levels of turnover, then they're contributing the same percentage more or less in terms of management service fees to us, but obviously, from quite small amounts to quite large amounts. That's the nature of it. Will -- some franchisees, of course, could retire, yes, always, as Gareth touched on that. That's a very nature of it. It's something that we stress. But we also spend a lot of time talking with them about what it is that really generates the value for their business because unlike some of these other models that run franchising is all about the fact that you generate a reasonable or good living during the time that you run the business and then you've got an asset at the end to sell, and that's much different to a lot of other models working in that sector. That is something that they have almost as their pension and then very incumbent on us to make sure that they're growing that value at the time they come to sell, that they have something that's worthwhile to do so. So we spend a lot of time talking about that with them. And that means actually that as Gareth said, we don't see some many franchisees decide to sell up more working in ways to either pass on to employees or to members of the family. So yes, changing dynamic there.

Before asking this question, I must commend you on the disclosure included around the share options in the preliminary results statement. May I ask about the share options? A substantially large grant was made in 2021, 1.1 million shares versus 400,000 in 2022. And the earnings per share target has benefited from the Hunters acquisition, which was pretty much in the pipeline at the time of the grant. A cynical and satisfied shareholder might feel a substantial grant was made aware that there would be a substantial uplift in the earnings per share in the year to 2021 through a sizable acquisition?

I'd like to split that up, if you don't mind because I've been here overseeing the whole grand team share option to by the time in the business from the day before we were quoted. And I think it's absolutely right to see that we bought Hunters because we could see it was earnings accretive. We wouldn't have done so, if we hadn't and therefore, we knew that earnings per share would drive and come what may. It's just how far and that was down to actions that we were required to take after acquisition. So there was a threshold set, a hurdle rate set fairly high in that 2021 grant, deliberately so, to say that we accept that some of this will happen come what may you need to get above that threshold through the initiatives that you're going to take and prove to us that you can drive it on that a bit further. And the target was set out that reflected the additional growth activity that we had to undertake. And I think that was the fair way to do it. So over to Gareth.

Yes, I think the target was too high to be fair. But in terms of -- yes, I think it was a fair target. And so share options are quite divisive, aren't they? I mean shareholders don't like them and executives, I guess, I think they should get more. But I think what we've managed to do, as a board, is come up with a fair incentivization. You look at the growth in the business that's been generated by David, me and the team. And I guess you ask each shareholder what will they be willing to pay back to the executive for doing that. I think we're -- yes, I think it's very reasonable. I look at other companies and some of the share awards that are made and some of the targets that are set and they're far less challenging than the ones we've been set.

And finally, can you comment on the current valuations of potential franchised businesses? Presumably, Winkworth would be a great fit, but not for sale.

Yes, the Winkworth was a great business. It would be a great fit, but it is a great business and the valuations of I think all 3 listed franchise businesses are probably a little bit too low at the moment, based on the recurring income that you've got. We're probably the most developed. I would say that [indiscernible] you've got Belvoir, they had a big move forward over the last 4 weeks and then you got Winkworth. So we -- when you look at the business model and you look at the success of the 3 businesses have had over the last 3 or 4 years, then they all strike me as undervalued at the moment. And our job is to keep working, keep driving the profit, keep driving performance to a level that we get fair value, I guess, in the market. But yes, Winkworth would be a lovely fit for us.

Thank you both very much. And that's the end of questions. Gareth, have you got any closing remarks?

Just as always, just thanks for your interest, your time's precious and giving up an hour to listen to us is really appreciated. We're delighted with the results we delivered this year. We've got plans for 2023, 2024 and beyond that are really exciting and hopefully, we've been able to relay that to you guys today. But hopefully, your interest will stay there and look forward to speaking to all of you again in September.

Many thanks indeed, Gareth and David. And to everyone listening, you'll now be taken to a webpage to give feedback on the presentation. If you're unable to complete it now, you'll receive a follow-up e-mail, we would be really grateful if you could take a few minutes to complete. Your comments are really helpful for the company. This is the end of the webinar.